For-Profit Colleges Need Stronger Oversight From States: Report

The federal government has moved to crack down on aggressive recruiting and crippling student debt levels at for-profit colleges over the past two years, yet major inconsistencies exist in the way state governments protect students from being deceived by unscrupulous institutions, according to a report released Thursday.

The report from the National Consumer Law Center found that many state higher-education departments lack adequate resources to follow up on student complaints on such issues as overstated promises about career placement or troubles with financial aid and billing. Oversight bodies in several states are also stocked with representatives of the for-profit college industry -- a conflict of interest that "can seriously undermine state efforts to protect consumers," according to the report.

As for-profit colleges have expanded dramatically over the last decade, with many becoming publicly traded national corporations offering online courses only, the variations in oversight across state lines create an uneven playing field for students.

"The states that are weaker in this area are really going to be doing more of their citizens a disservice now that this is a national industry," said Deanne Loonin, a staff attorney at the National Consumer Law Center and a co-author of the report. "Citizens perceive the states as being the consumer protector. That's often the first place people are going to turn."

A spokesman for the Coalition for Educational Success, a trade group representing dozens of for-profit colleges, pointed to a "standards of responsible conduct" document that the group released earlier this year. Noah Black said many of the consumer protection problems mentioned in the report could be fixed if more schools signed on to the group's plan. Major players in the industry are notably absent from the pact.

"We hope more schools will join ... and improve transparency, disclosure and student readiness at their schools," Black said.

The for-profit college industry encompasses a wide array of institutions, from mom-and-pop beauty and mechanical schools to mammoth online universities such as Kaplan University and DeVry University. As the bleak economy has prompted more and more Americans to reconsider higher education as a path to opportunity, the industry has been under heightened scrutiny.

Students at for-profit institutions are more than twice as likely to default on student loans. Tuition is on average nearly twice as expensive as that at public institutions: nearly $31,000 at for-profit colleges, compared to nearly $16,000 at public institutions, according to statistics from the U.S. Department of Education. Until recently, when the federal government stepped in with stricter regulations, many college corporations were seeing record profits. At the same time, many students were left to shoulder unmanageable debt loads, given their meager job prospects upon graduation.

The federal government is responsible for certifying a college's eligibility for federal student aid, such as loans or Pell grants, and ensuring that schools comply with federal laws that ban incentives for recruiting more students. State governments provide an added layer of oversight, and they are the gatekeepers for state grants, which increasingly are going to for-profit colleges.

Yet the relevant policies and procedures differ widely from state to state.

For example, under new federal regulations that went into effect in July, state higher-education agencies are explicitly required to review and act on student complaints. But the National Consumer Law Center report found that a dozen states did not have a complaint form on their higher-education agency's website or a description of how students could send in complaints about colleges.

The report also analyzed the available staff resources. Several states, including Oklahoma, Washington and Wyoming, had fewer than two people responsible for overseeing more than 100 separate for-profit schools.

Even state departments with larger staffs dedicated to handling student complaints do not work effectively, according to the report. For example, the Florida Auditor General found that the state's Commission for Independent Education did not maintain documentation for more than a dozen outstanding complaints and took more than a year to resolve some formal complaints.

Politics has also played a role in dumbing down regulations in some states. In Florida, Kentucky and Arizona -- home to the University of Phoenix, the largest for-profit college in the nation -- a majority of the members on state oversight boards come from the for-profit college industry.

The former chairman of the Kentucky State Board of Proprietary Education, Mark Gabis, is the president of Daymar Colleges, a chain of for-profit colleges, and is now being sued by Kentucky Attorney General Jack Conway (D) over consumer protection violations. Local media reports found that the Kentucky oversight board could provide no documentation on how it handled 11 formal complaints lodged against colleges in the state.

The Kentucky Legislature attempted to change the makeup of the board this year, but was unable to get a bill passed.

The report points to the existence of stronger consumer protection laws in some states and recommends that more states adopt stricter rules. Washington state law, for example, prohibits colleges from recruiting students within 40 feet of welfare or unemployment offices. And Colorado state law bars colleges from misrepresenting the likely income a graduate is expected to earn in a particular industry.

Among the report's other recommendations: states should adopt stronger laws requiring schools to give refunds if students were misled by advertising or upfront promises about career opportunities, and states should require a "cooling-off period" to give students time to reconsider enrollment before taking on debt.